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    Tax not applicable even if companies use securities premium to set off losses: ITAT Delhi

    Synopsis

    The ruling is set to give clarity to many companies in the situation, especially around whether securities premiums can be used to set off losses, said industry experts.

    Agencies
    The ITAT held that the tax department cannot recast or take objection to the books or financial statements prepared by companies as per the regulations under Companies Act.
    Mumbai: Securities premium can be used to set off brought forward losses in the company’s financials and that should not be subjected to tax, Delhi Bench of the Income-tax Appellate Tribunal has ruled.

    The ruling is set to give clarity to many companies in the situation, especially around whether securities premiums can be used to set off losses, said industry experts.

    This ruling affirms the principles that securities premium does not bear the character of income and that Revenue (tax department) cannot alter or recast the books (financial statements) except in rare situations a Deloitte report said.

    As per the details of the case a company that is into manufacturing of aerated drinks had said that it has incurred losses and hence no tax was applicable on it as per the Minimum Alternate Tax (MAT) provisions. MAT, at 15 per cent, is levied on the book profits of a company.

    During investigations by an income tax officer it was found that the company had used the security premium to set off carried forward losses but had not debited the amount in profit and loss account (P&L).

    The ITAT held that the tax department cannot recast or take objection to the books or financial statements prepared by companies as per the regulations under Companies Act.

    Further, for making additions to the ‘book profits’ as shown in the P&L a/c, the AO could only invoke Explanation to section 115JB(2) (section for MAT) of the ITA, it added.
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    1 Comment on this Story

    Ravie Gupta3 days ago
    infact this is good for Income Tax department, if these assesses don't claim of these carried forward losses to subsequent years.
    The Economic Times